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Lack of Inventory Blamed for June's Dip in Pending Home Sales

by Mark Lieberman

In another sign the housing sector may be languishing – again – the Pending Home Sales Index (PHSI) dipped 1.4 percent in June to 99.3 from a downwardly revised 100.7 in May, the National Association of Realtors reported Thursday. Economists had expected a 0.9 percent increase to 101.6.

The original May report had the index at 101.9, returning to its level of March.

After positive reports earlier this month – an increase in builder confidence measured by the National Association of Home Builders’ Housing Market Index, a jump in starts and a pop in the median price of an existing home – housing statistics have faltered with a drop in sales in both new and existing homes.

Indeed, a drop in the PHSI reinforced Wednesday’s report showing a drop in new home sales for June. Both track contracts, not closings, and provide a current snapshot of homebuyer interest and a reflection of the economy.

The PHSI had been rising steadily until April. Existing home sales rose in the last half of 2010 before leveling.

That said, even with the decline in June, the index is up 9.5 percent on a year-year basis though the 12-month improvement in June was the weakest in five months.

Pending home sales are counted when sales contracts are signed, and are viewed as a leading indicator of existing home sales.

Recent PHSI reports suggest home re-sales should have been a bit stronger but existing home sales fell to an eight-month low in June tracking a month-month decline in thePHSI in April.

The drop in the PHSI was the second in the last three months and was widespread. The index fell in three of the four census regions, improving only in the West where it increased 2.6 percent. The index fell 7.6 percent in the Northeast, 2.0 percent in the South and 0.4 percent in the Midwest. On a year-year basis, the index was up in all four census regions led by a 17.3 percent improvement in the Midwest. It was up 12.2 percent year-year in the Northeast, 8.8 percent in the South and 3.0 percent in the West.

The PHSI has been drifting upward, albeit modestly for most of the past two years. The June drop coming in the middle of the traditional home buying season is a disappointing signal tempered further by the reality that a substantial number of sales contracts are failing to meet underwriting tests and/or other loan standards.

Lawrence Yun, NAR chief economist, blamed a lack of inventory for the drop in the index.

“Buyer interest remains strong but fewer home listings mean fewer contract signing opportunities,” he explained. “We’ve been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors.”

Yun also cited delays in the foreclosure process due to legal challenges.

“There have been some delays with recent foreclosure sales as banks take steps to ensure there are no paperwork problems,” he said. “This is causing an uneven performance in sales closings, which is likely to continue, but we also see notably higher levels of sales activity compared with a relatively flat performance in the preceding four years.”

The index is based on a large national sample, representing about 20 percent of transactions for existing-home sales. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.

 

Healthcare law's surtax could affect a few home sellers in 2013

by Kenneth R. Harney

WASHINGTON — When the Supreme Court upheld the healthcare reform law on federal tax grounds, it re-stoked a housing issue that had been relatively quiet for the last year: The alleged 3.8% "real estate tax" on home sales beginning in 2013 that is buried in the legislation.

Immediately following enactment of the healthcare law, waves of emails hit the Internet with ominous messages aimed at homeowners. A sample: "Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it? When did this happen? It's in the healthcare bill. Just thought you should know."

Once litigation challenging the law's constitutionality surfaced in federal courts, the email warnings subsided. But with the law scheduled to take effect less than six months from now, questions are being raised again: Is there really a 3.8% transfer tax on real estate coming in 2013? Does it preempt the existing $250,000 and $500,000 capital gains exclusions for single-filing and joint-filing home sellers, as some emails have claimed?

In case you've heard rumors or received worrisome emails about any of this, here's a quick primer:

Yes, there is a new 3.8% surtax that takes effect Jan. 1 on certain investment income of upper-income individuals — including some of their real estate transactions. But it's not a transfer tax and not likely to affect the vast majority of homeowners who sell their primary residences next year.

In fact, unless you have an adjusted gross income of more than $200,000 as a single-filing taxpayer, or $250,000 for couples filing jointly ($125,000 if you're married filing singly), you probably won't be touched by the surtax at all, though you could be affected by other changes in the code if Congress doesn't extend the Bush tax cuts scheduled to expire at the end of this year.

Even if you do have income greater than these thresholds, you might not be hit with the 3.8% tax unless you have certain types of investment income targeted by the law, specifically dividends, interest, net capital gains and net rental income. If your income is solely "earned" — salary and other compensation derived from active participation in a business — you have nothing to worry about as far as the new surtax.

Where things can get a little complicated, however, is when you sell your home for a substantial profit, and your adjusted gross income for the year exceeds the $200,000 or $250,000 thresholds. The good news: The surtax does not interfere with the current tax-free exclusion on the first $500,000 (joint filers) or $250,000 (single filers) of gain you make on the sale of your principal home. Those exclusions have not changed. But any profits above those limits are subject to federal capital gains taxation and could also expose you to the new 3.8% surtax.

Julian Block, a tax attorney in Larchmont, N.Y., and author of "Julian Block's Home Seller's Guide to Tax Savings," says it will be more important than ever to pull together documentation on the capital improvements you made to the property and expenses connected with the house — including settlement or closing costs, such as title insurance and legal fees — that increase your tax "basis" in order to lower your capital gains.

Since the healthcare law targets capital gains, you could find yourself exposed to the 3.8% levy on the sale of your home next year.

Here's an example provided by the tax staff at the National Assn. of Realtors. Say you and your spouse have adjustable gross income (AGI) of $325,000 and you sell your home at a $525,000 profit. Assuming you qualify, $500,000 of that gain is wiped off the slate for tax purposes. The $25,000 additional gain qualifies as net investment income under the healthcare law, giving you a revised AGI of $350,000. Since the law imposes the 3.8% surtax on the lesser of either the amount your revised AGI exceeds the $250,000 threshold for joint filers ($100,000 in this case) or the amount of your taxable gain ($25,000), you end up owing a surtax of $950 ($25,000 times 0.038).

The 3.8% levy can be confusing and can bite deeper when your taxable capital gains are far larger or you sell a vacation home or a piece of rental real estate, where all the profits could subject you to the investment surtax. Talk to a tax professional for advice on your specific situation.

 

Lawmakers released a damning report Thursday that found Countrywide Financial deployed 17,979 loans to peddle influence with elected officials, stall GSE reform, and solicit exclusive access for Fannie Mae and the ultimately doomed mortgage unit over the course of more than a decade.

The 136-page report rounds off an investigation into the so-called “Friends of Angelo” circle that in some cases allegedly supplied mortgages free of upfront fees, origination points, and default penalties to influential insiders and power-brokers, including members of Congress, senior executives with Fannie Mae, and high-ranking congressional staffers.

The findings offer a sweeping indictment against the defunct mortgage unit, which Bank of America acquired in 2008. Rep. Darrell Issa (R-California), chairman of theHouse Oversight and Government Committee, led a roughly three-year investigation that culminated in the report Thursday.

According to the report, Angelo Mozilo, then-CEO of Countrywide, instructed staff members and lobbyists to offer deals in order to deliberately curry favor with elected officials and their staffers. Staffers were instructed to approve loans for VIP borrowers “regardless of documentation or qualifying challenges” in some instances.

The investigation found that Countrywide often waived points and offered discounts on loans to those who receivedVIP home loans. Waiving so-called “junk fees,” or upfront fees, could mean anywhere from $350 to $400 in savings for select borrowers.

A VIP unit separate from the normal complaints process offered “enhanced customer service” to people forwarded by Mozilo and others.

Among those who reportedly received sweetheart deals: former Sen. Chris Dodd (D-Connecticut), who later helped shepherd through the Dodd-Frank Act, along with twoHUD secretaries, three former CEOs with Fannie Mae, and many others.

The investigation found that former Fannie Mae CEO Jim Johnson, a longtime political figure who briefly chaired the vice-presidential search committee for President Barack Obama, forwarded HUD secretaries Henry Cisneros and Alphonso Jackson to the VIP unit, among others.

Countrywide – the likes of which later bore losses for acquirer Bank of America and transferred loss to the taxpayer during the financial crisis – also shielded certain loans from the typical foreclosure process and other penalties.

For example, the mortgage unit took a loss on a loan for former Fannie Mae CEO Daniel Mudd, advising staffers to conceal any “derogatory information” related to his loan in order to continue “any benefit we generate,” according to the report. Mudd later left the mortgage giant before it entered federal conservatorship in 2008.

The report delineated a close relationship between Countrywide and Fannie Mae. In one instance, the GSEfronted 70 lobbyists for the House Financial Services Committee, helping kill four bills introduced by members to reform the mortgage companies.

The companies also engaged the Senate Banking Committee with their lobbying muscle.

According to the report, Dodd – who served as chairman and left Congress in 2010 after clearing an ethics investigation over any links to Countrywide’s VIP unit – made a VIP referral for Mary Jane Collipriest, communications director for then-Sen. Robert Bennett (R-Utah).

Speaking with MReport, Mark Calabria, a former Senate Banking Committee staffer, now with the Cato Institute, says that “it was generally known” that Countrywide “was running a very extensive lobbying campaign,” withVIP loans “a crucial feature of it.”

He tells us that the House and Senate committees “were a particular target.” According to Calabria, he turned down a VIP loan from an unnamed lobbyist with Countrywide in 2005.

A spokesperson for the House Financial Services Committee did not immediately return requests for comment.

Richard Simon, a spokesperson with Bank of America, which cooperated with the investigation, declined to comment, noting that the financial institution discontinued the VIP program when it bought Countrywide in 2008.

CNN reported by midday Thursday that other congressional offices named by the report had refuted findings with separate statements.

It was not immediately clear whether the report would lead to further investigations.


 

 

The first round of winners has been selected to purchase foreclosed real estate from Freddie Mac and Fannie Mae.  The Federal Housing Finance Agency (FHFA) announced today that 2,500 single family homes had been awarded to successful bidders under a pilot initiative to convert real estate acquired by the two government sponsored enterprises (GSE) through foreclosure into rental property. 

Successful candidates for purchasing properties from the GSE's real estate portfolio (REO) had undergone several steps in a qualification process before being permitted to bid on the houses which they had to agree to hold and rent for a period of time before reselling. 

The properties were offered in sale pools which were geographically concentrated in various locations across the United States.  The GSEs, FHFA and other federal agencies involved, Departments of Treasury, Housing and Urban Development, Federal Deposit Insurance Corporation and the Federal Reserve, had several goals for the program.  They hoped to relieve the GSEs of the costs and administrative burdens of managing thousands of foreclosed properties, alleviate the blight imposed on communities by large number of vacant and possibly deteriorating properties, increase the rental stock, while at the same time not flooding the market with distressed properties.

 FHFA described the response to the pilot initiative as "robust with strong qualified bidder interest."  Some 4,000 responses were received to the initial "Request for Information" issued by the program sponsors last February, however beyond announcing that the awards had been made FHFA released no information on the names or even the numbers of successful bidders.

"FHFA undertook this initiative to help stabilize communities and home values in areas hard-hit by the foreclosure crisis," said Edward J. DeMarco, Acting Director of FHFA. "As conservator of Fannie Mae and Freddie Mac, we believe this pilot program will assist us in achieving our objectives and help to maximize the benefit to taxpayers. We are pleased with the response from the market and look forward to closing transactions in the near future."

 

 

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